UAE reduces VAT and Excise Tax Penalties to encourage taxpayers to reassess their past VAT returns, rectify the errors, and come out clean in the eyes of law.
VAT fines and penalties relief
To discourage delay in payment of taxes, the UAE Government had earlier kept severe penalties ranging from 6 percent of the unpaid tax for the first month of delay and up to 1 percent per day, with an upward ceiling limit of 300 percent. While the intent to impose penalty was in good spirit, it unfortunately also applied to cases where businesses came forward (by submitting VD) to admit a genuine mistake of an error or omission in their past tax filings.
UAE Government on April 28, 2021, issued Cabinet Decision No. 49 of 2021 significantly reducing the quantum of penalties across various categories of violations.
The three key changes were:
(i) Reduction in late payment penalty from 1 percent per day to 4 percent per month
(ii) No late payment penalty on voluntary disclosure if tax is paid within 20 days of its submission; and
(iii) Introduction of amnesty scheme enabling a reduction in unpaid past penalties by 70 percent.
With the new decision, the late payment penalties have been lowered to 2 percent for the first month of delay and 4 percent monthly with the maximum ceiling as is. However, the most relieving change, which will make every business cheer, is the fact that the late payment penalties would not be applied on VD if the differential tax is paid within 20 days of its filing.
Reduction in VAT and Excise tax penalties in UAE
In cases where a taxpayer fails to submit a VD before being notified of the tax audit, the court’s decision prescribes a 50 percent penalty of the unpaid tax and 4 percent per month be calculated from the due date of the tax until the date of receipt of the tax assessment. This suggests that if a tax audit is initiated on any business for a period related to the year 2018, it could be subject to a penalty as high as 200 percent of the unpaid tax.
Considering the higher quantum of penalty post-tax audit notice, businesses should become cautious and immediately start assessing their past VAT and excise filings and rectify the errors voluntarily at the earliest.
The UAE Government has also introduced an amnesty scheme through this, where unpaid penalties that were levied under the previous Cabinet Decision No. 40/2017 can be reduced by 70 percent provided the taxpayer discharges the unpaid tax and 30 percent of total penalties by December 31, 2021. While further details are awaited about the scheme and its application, it also needs to be seen whether it could apply to cases pending under litigation.
How SAB will help?
The reduction in penalties is a step in the right direction as it should result in significantly higher compliance among businesses, consequently leading to increased tax collections for the Government.
SAB is one of the registered tax agents in UAE by FTA. SAB will help you to get relief from all kinds of VAT and excise tax fines by ensuring compliance. Our tax experts will conduct a Tax health check in order to find out any discrepancies and rectify them at the earliest. If you or your business are facing any kind of fines and penalties from FTA, Contact us – We will help you in reducing the penalty and get the maximum relief.